Sluggish Labor Market in July

August 15, 2012

The Bureau of Labor Statistics' July employment report shows that, contrary to predictions of a summer jobs recovery, the unemployment rate has ticked up to 8.3 percent. According to a survey of employers, they added a net of just 163,000 new jobs, up from the pace of the previous two months but still too slow to make a significant dent in the unemployment lines, say James Sherk, a senior policy analyst, and J.D. Foster, the Norman B. Ture Senior Fellow in the Economics of Fiscal Policy, at the Heritage Foundation.

Despite this economic weakness, many in Congress are proposing that taxes be raised by $500 billion in 2013. Every major school of economic thought -- from supply-side to Keynesian -- concludes that raising taxes on investors and job creators will further retard the already weak recovery. Congress should defuse the tax hike immediately and then reduce the budget deficit by restraining spending.

The labor market remained sluggish in July.

The household survey found that the unemployment rate rose 0.1 points to 8.3 percent. This increase was not due to workers rejoining the labor force and thus being officially measured as unemployed.

In fact, the labor force participation rate fell by 0.1 percentage points to 63.7 percent as 150,000 workers left the workforce.

The average duration of unemployment did fall by just over a week to 38.8 weeks.

However, this could have been driven by the long-term unemployed stopping their job search, not finding new jobs.

The payroll survey paints only a slightly more optimistic picture of the labor force. Employers reported adding a net 163,000 jobs in July. This paltry growth is marginally more than the approximately 100,000 to 150,000 jobs needed to keep pace with population growth.

However, indicators of future increases in labor demand remained flat in July.

The employment report accords with the recent disappointing gross domestic product estimates, which showed that the economy grew just 1.5 percent in the second quarter. Until the economy starts growing at a faster rate, unemployment will remain stuck around 8 percent -- a grim prospect for the 12.8 million unemployed.

The significant tax increases will reduce the incentive to invest, start new businesses and expand existing operations.